Types Of Contractual Terms: Everything You Need to Know

Types of contractual terms can be conditions, warranties or innominate terms. They may be expressed specifically in a contract, implied by a general understanding between the parties, or implied by statute. Each provides remedies for an aggrieved party in the event of a failure of one party to fulfill their obligations of the contract, although the extent of the remedies vary upon the type of contractual term.

What is a Condition?

A condition is essentially the basis for a contract. It provides for the obligations of each party to an agreement. The simplest way to think of a condition in contract law is found in the terms “If…then”. “If” one party fulfills an obligation as contained in the agreement, “then” the other party to the agreement must fulfill their obligation to that party.

For instance, a condition in a contract for a sale of goods might include the terms that the successful completion of a contract relies upon an agreed upon delivery date of the goods. In order to fulfill the terms of that contract, the seller will only receive compensation for their goods if the buyer receives those goods by that set date.

If the seller should fail to meet that deadline, then the seller can be held in breach of the contract. The injured party can treat this failure of the seller to meet their obligations as “repudiatory”, meaning the injured party has two options:

Terminate the contract (acceptance of the repudiation) and walk away from any obligations they may owe the seller; or

Treat the contract as continuing (affirmation of the contract)

It’s important to note that in either case, the injured party can sue for damages, no matter the reason for the breach or how little the loss to the party may be.

Two Types of Conditions

Two types of conditions can be found in a contract: Expressed or Implied Conditions.

Expressed Conditions: As the name implies, these are conditions that have been clearly described and agreed upon by both parties to an agreement. If obligations laid forth in an expressed condition are not met, a breach of contract can be determined with liability assessed and damages awarded.

Implied Conditions: These are conditions that are assumed to be accepted by both parties regarding their obligations. These may include conditions that ownership is not in question, the goods are not damaged, or that it is not necessary to provide detailed descriptions of the good beyond its name, i.e. it’s accepted that a bowling ball is a bowling ball and not a basketball. However, implied conditions can be superseded by an expressed condition.

What is a Warranty?

A warranty is a term in a contract that is more like a promise by one party than a condition agreed upon by both parties. A major difference is that if a party fails to live up to a warranty, the aggrieved party can sue for damages, but the failure does not provide cause for termination of the contract.

If the other party considers the warranty by one party important enough, then it could be classified as a condition. Generally, however, a warranty is usually only a statement of facts. They can be expressed or implied and can exist for the lifetime of the contract or be contractual only for a limited time.

What is an Innominate Term?

An innominate term is a term that cannot be defined as either a condition or warranty in contracts. In the case where a party seeks recourse for a failure of the other party to fulfill the obligations of innominate term, it will be up to the courts to determine a remedy.

If the court determines that a breach has occurred, the remedy for the breach will depend on how the injured party is affected at the time the breach happens. If the breach is deemed substantial, then the innominate term will be viewed more like a condition, and in addition to claiming damages, the injured party may terminate the contract. If the court views the breach to be more in line with a failure to fulfill a warranty, the injured party may claim damages, but does not have the ability to terminate the contract.

If you suspect that an agreement has been breached, it’s always a good idea to seek legal counsel in order to more thoroughly identify the different terms in a contract and determine what remedies are available. Remedies can vary greatly depending on the type of term for which the other party has not met their obligations, and the strategies to deal with the failure may also be different.

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